Trace Mayer

Bitcoin Market Not A Bubble And Still Highly Undervalued [View article]

Yes, I am not sure why SA has such a negative bias towards Bitcoin. It seems they only publish the negative articles about it. Personally, I am interested in where the money is being made.

Bitcoin created a new category of crypto-currency four years ago. In the next few days I am going to write an article about the Bitcoin investment grand slams. In those four years I have recommended four investment opportunities (Bitcoin, Litecoin, S.DICE and ASICMINER) that *each* returned 1,000%+ in less than 12 months and currently all of them have market caps in excess of $50m and $1m+ per day of volume.

Consequently, this nascent crypto-currency space is generating and creating massive amounts of wealth for those playing in it. I suppose it is hard for the other investment articles on SA to compete when ROIs like that are getting thrown up on the scoreboard.

The correction seemed needed and a general rotation also churns prices. Selling covered calls on the way down sure helps mitigate some of those 'lost dividend years' from unrecognized losses.

But looking at O fundamentally, I think selling the $45 puts for June or the $40 puts for Jul or Sep is a great way to establish an entry point or generate cash flow in the meantime.

Either way the price is getting attractive and given that the economy is really not doing that much better and interest rates are likely not rising anytime soon thus it seems like the recent Fedspeak noise is just that and not signal. Go ahead, raise interest rates and sink the budget deficit even more!

With the interest rate and QE noise coming out of the Fed has introduced uncertainty. Consequently, it seems that selling ITM covered calls on O is one of the better ways to play this assuming one wants long exposure and cash-flow but also some protection with a moderate bearish short-term outlook.

Bitcoin Market Not A Bubble And Still Highly Undervalued [View article]

There are lot of fundamentals undergirding the Bitcoin market. SeekingAlpha has refused several times to publish my articles on Bitcoin citing lack of public understanding of the financial instrument so I have just published them over here:

And for those who think there is a massive Bitcoin bubble. The last bubble went from $0.05 to about $32 and unlike so many who are calling this a bubble I know what it felt like back then because I was there. For a comparable move the bitcoin price would need to move from about $5 to around $3,200, a 20x rise from current prices, and we are only about 5% up this ‘wall of worry’. And like usual, Scoreboard, because we are playing this game for financial keeps.

Bitcoin: Buyer Beware, This Is A Classic Bubble And Possible Fraud [View article]

Robert,

The Bitcoin economy has greatly evolved since the last bubble. VCs are starting to chime in on the potential like Jeremy Liew who wrote ' ‘In all the scenarios that I’ve painted above, Bitcoin prices need to go up by 100x or more.’

Then you have the fundamental analysis by Adam Draper, an established VC, who will ‘incubate 5-7 Bitcoin related companies in our next batch‘. Why? The reasons stated earlier are: (1) increased investor confidence in the Bitcoin protocol, (2) reduced legal uncertainty from FinCEN guidelines, (3) Cyprus bank deposit seizures, (4) current adoption by large tech companies like WordPress, Reddit, Expensify and Namecheap and (5) the rising price where he stated ‘My prediction – Bitcoin hits $225 by August.’

And for those who think there is a massive Bitcoin bubble. The last bubble went from $0.05 to about $32 and unlike so many who are calling this a bubble I know what it felt like back then because I was there. For a comparable move the bitcoin price would need to move from about $5 to around $3,200, a 20x rise from current prices, and we are only about 5% up this ‘wall of worry’.

So while you lay out some points for the bear case I think it is good for investors to read the bull case:

@Ponchovilla, why do you order stuff from New Egg? You can order from The Bitcoin Store (http://bit.ly/WVnJOC) which has tens of thousands of items and you get stuff for on average 2-8% less than New Egg. Or do you just like paying higher prices?

"[Bitcoin] the currency, although quite volatile, is one of the strongest in the world".

This is quite the understatement considering gold has outperformed all major fiat currencies and gold has completely collapsed against Bitcoin for all four years of Bitcoin's existence. Just look at the chart showing the performance of all major currencies against gold:

Of course, what do you expect with something that allows anyone to send any amount of funds to anyone anywhere at anytime in a way that cannot be stopped or impeded and the funds cannot be frozen, seized or confiscated and all for a tiny or no fee.

@Jeff Gonion: "In order to benefit from the facts in this article, and investor would need to know when the S&P is hitting it's peak and move into gold.

Easier said than done.

In fact, if you can identify the peaks, you wouldn't bother with gold, you would simply short the S&P and make a *lot* more that way."

Great points Jeff but I think it is actually easier done than said. It is very easy to see the long-term secular bull and bear markets. From that you can determine whether gold or equities are expensive or cheap.

Then you know the secular trend which is like knowing whether you have a tailwind or headwind or are entering winter as opposed to summer. Sure, day to day variations exist, like with silver currently, which can be unexpected and extremely outside normal standard deviations but probabilities can be greatly placed in your favor when allocating capital to make it productive.

To see this applied I provide updated ratios in context with 40 year graphs here:

As far as not bothering with gold .... I think that is rather unwise. Gold is the *numeraire par excellence* and essential for developing a sound capital investment theory as I discuss in Learn How To Use A Numeraire:

OnMargin is getting at the real issue which is that gold and GLD are not the same instrument for one's portfolio.

The negative correlation between gold and equities is helpful to keep in mind. Gold will likely perform well so long as negative real interest rates persist. Given the status of Europe and likely outcomes that is probably the play; short Euros long gold.

Calls/puts may be helpful for smoothing currency exchange rate risk for a portfolio using gold as the numeraire. IMO, for making cash-flow style profits with covered calls there are easier ways like using a Canadian oil underlying like PWE, PVX or PGH.

But I do find it rather humorous that you are long GLD and conflate gold and GLD. GLD is not gold but merely a gold price proxy, for now. Of course, this distinction does not really matter much until it is the only thing that matters. Just ask the people in MF Global's bankruptcy line who thought their paper gold instrument was gold .... suckers. Plus, it happened to many who should have known better.

Here are some excerpts from a couple articles I wrote about the GLD ETF that may be relevant to the discussion:

Page 11 states “Neither the Trustee nor the Custodian independently confirms the fineness of the gold allocated to the Trust in connection wtih the creation of a Basket [issuances].” Page 12 “In issuing Baskets, the Trustee relies on certain information received from the Custodian which is subject to confirmation after the Trustee has relied on the information. If such information turns out to be incorrect, Baskets may be issued in exchange for an amount of gold which is more or less than the amount of gold which is required to be deposited with the Trust.” There is no assurance that the ‘gold’ held in the ETFs is actually the same gold as defined under the periodic table.

The latest 10-K ( Commission File Number 000-32356) on pages 26 and 18 respectively: ” Gold held by the Custodian’s currently selected subcustodians and by subcustodians of subcustodians may be held in vaults located in England or in other locations.” and “In addition, the Trustee has no right to visit the premises of any subcustodian for the purposes of examining the Trust’s gold or any records maintained by the subcustodian, and no subcustodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian.”

The negative correlation between gold and equities is helpful to keep in mind. Gold will likely perform well so long as negative real interest rates persist. Given the status of Europe and likely outcomes that is probably the play; short Euros long gold.

But I do find it rather humorous that you are long GLD and conflate gold and GLD. GLD is not gold but merely a gold price proxy, for now. Of course, this distinction does not really matter much until it is the only thing that matters. Just ask the people in MF Global's bankruptcy line who thought their paper gold instrument was gold .... suckers. Plus, it happened to many who should have known better.

Here are some excerpts from a couple articles I wrote about the GLD ETF that may be relevant to the discussion:

Page 11 states “Neither the Trustee nor the Custodian independently confirms the fineness of the gold allocated to the Trust in connection wtih the creation of a Basket [issuances].” Page 12 “In issuing Baskets, the Trustee relies on certain information received from the Custodian which is subject to confirmation after the Trustee has relied on the information. If such information turns out to be incorrect, Baskets may be issued in exchange for an amount of gold which is more or less than the amount of gold which is required to be deposited with the Trust.” There is no assurance that the ‘gold’ held in the ETFs is actually the same gold as defined under the periodic table.

The latest 10-K ( Commission File Number 000-32356) on pages 26 and 18 respectively: ” Gold held by the Custodian’s currently selected subcustodians and by subcustodians of subcustodians may be held in vaults located in England or in other locations.” and “In addition, the Trustee has no right to visit the premises of any subcustodian for the purposes of examining the Trust’s gold or any records maintained by the subcustodian, and no subcustodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian.”